In 1992, shortly after Mozilo became chairman of the Mortgage Bankers Association, the Federal Reserve Bank of Boston issued a report stating that it had found systemic discrimination by mortgage lenders against African-American and Hispanic borrowers. Robert Gnaizda, former general counsel of the Greenlining Institute, a nonprofit organization focused on minority rights, sent the report to Mozilo and other mortgage bankers."I received a harsh response from Mozilo," Gnaizda told me. Privately, however, Mozilo was appalled. He ordered that all Countrywide's records on rejected minority applicants be sent to him, and he retroactively approved about half of them. Then he dispatched African-Americans, posing as prospective borrowers--he called them"mystery shoppers"--to Countrywide branches, and concluded that they were indeed treated differently from white borrowers.

Countrywide opened new offices in inner-city areas, created counseling centers, and loosened some lending standards, to include borrowers with less than pristine credit histories. Between 1993 and 1994, the company's loans to African-American borrowers rose three hundred and twenty-five percent, and to Hispanics they increased a hundred and sixty-three per cent. In 1994, Countrywide became the first mortgage lender to sign a fair-lending agreement with the Department of Housing and Urban Development.